Wednesday, September 30, 2015

During the 2014 G20 Brisbane Summit leaders adopted new High Level Principles on Beneficial Ownership Transparency, declaring that financial transparency, in particular the transparency of beneficial ownership of legal persons and arrangements is an extremely high priority.

Expressing its commitment to promoting greater corporate transparency, on March 26, 2015, the UK Parliament passed into law the Small Business, Enterprise and Employment Act 2015.

Numerous fundamental changes to UK company law include, among others, the abolition of bearer shares and corporations acting as directors, and the establishment of a central public registry of those individuals who hold significant control of UK companies. These reforms are designed to increase transparency around who ultimately owns and controls UK companies.

The full impact of the Act on financial institutions in the UK and abroad, notably the United States and Europe, remains to be seen but it is widely expected to influence the customer due diligence undertaken as a matter of best practice when looking to enter into a transaction with a UK company.

This month the Act is expected to receive a staged implementation commencing and be fully implemented by April 2016.

The Act will require most UK companies to identify those “persons with significant control” (PSCs) over the company and maintain a register of those persons. The publicly available PSC register is expected to be fully searchable and freely available online.

A PSC is defined as an individual who ultimately owns or controls more than 25 per cent of a company’s shares or voting rights or, who otherwise exercises control over a company or its management. It is expected that the UK Government will issue guidance to assist companies in determining whether an individual fulfils such criteria.

Companies will be required to take necessary steps to identify people they know or suspect to hold significant control, or risk being convicted of a criminal offense. Similarly PSCs will be required, in certain circumstances, to disclose their interest in the company to the company or also risk being convicted of a criminal offense.

Unless an exemption applies, the Act will apply to all UK incorporated companies.

It should also be noted that the UK Secretary of State is afforded discretion under the Act to exempt any person (whether an individual or a legal entity) from the provisions of the PSC register. Such exemptions must not be granted unless the Secretary of State is satisfied that there are “special reasons” why that person should be exempted, however no guidance is provided in the Act as to what constitutes such “special reasons.”

Companies will be required to maintain a PSC register from January 2016 and provide this information to Companies House for inclusion on the public register from April 2016 onwards.

Furthermore, the European Union Council, on April 20, 2015, endorsed proposals to require member states to maintain a central register of information on the beneficial ownership of corporate and other legal entities. It would be at the discretion of member states as to whether such information would be publicized.

Under the proposals, beneficial ownership information would be accessible to competent authorities and financial intelligence units and, in the framework of the conduct of customer due diligence, to obliged entities.

The plan was endorsed as part of a package of measures aimed at preventing money laundering and terrorist financing. The following information on beneficial owners would be retained:

Name; Month and year of birth; Nationality; Country of residence; and The nature and approximate extent of the beneficial interest held.

As for trusts, the central registration of beneficial ownership information will be used where the ownership of a trust has tax consequences.

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